1. 1 Chp. 13: Unemployment and Inflation Focus: Twin Evils of Macroeconomics: Inflation and Unemployment Phillips Curve Lucas Critique

2. 2 Phillips Curve : There is negative relationship between inflation and unemployment п = -h*u Phillips curve broke down in 70’s.

3. 3 Expectation-Augmented Phillips Curve: Negative association between unanticipated inflation (п- п e ) and cyclical unemployment (u – u f ). Lucas Critique: Changes in policies affect economic behavior. The historical relationship among variables need not hold if policy changes. There is no trade-off between inflation and unemployment in the long run.